Oil services companies FMC Technologies and Technip plan merger

By Stanley Reed, New York Times

May 19, 2016Updated: May 19, 2016 8:04pm

Photo: Aaron Sprecher /Bloomberg News

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A FMC Technologies Inc. employee checks an interactive mural at the company’s booth during the 2016 Offshore Technology Conference in Houston earlier this month. FMC Technologies and Technip, both oil services companies, announced Thursday that they planned to merge in a $13 billion transaction. less

A FMC Technologies Inc. employee checks an interactive mural at the company’s booth during the 2016 Offshore Technology Conference in Houston earlier this month. FMC Technologies and Technip, both oil ... more

Photo: Aaron Sprecher /Bloomberg News

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Thierry Pilenko, chairman and chief executive of Technip, would serve as executive chairman of the combined company.

Thierry Pilenko, chairman and chief executive of Technip, would serve as executive chairman of the combined company.

Photo: Francois Guillot /AFP /Getty Images

Oil services companies FMC Technologies and Technip plan merger

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LONDON — Two large oil services companies, FMC Technologies and Technip, said Thursday that they planned to merge in a $13 billion transaction.

The deal is a sign of pressures on the oil services industry, which performs much of the oil field work for major energy companies around the world, to reduce costs at a time of lower oil and gas prices. The companies said in a joint statement that they expected at least $400 million in annual cost savings from the all-stock deal by 2019.

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The deal, if completed, would combine Technip, which is based in Paris and is a major player in the demanding and costly work of developing offshore oil and gas fields, with FMC, a maker of energy equipment based in Houston.

FMC has a 57,000-square-foot facility at 3844 S. Loop 1604 East to serve the Eagle Ford Shale region in South Texas.

FMC and Technip had combined revenue of $20 billion in 2015 and would have more than 49,000 employees in 45 countries, they said in a joint statement.

Douglas J. Pferdehirt, president and chief operating officer of FMC, would become chief executive of the new company, which would be called TechnipFMC and would be based in London, where the two companies already have a joint venture. It would have operating offices in Houston and Paris and would be listed on the New York and Paris stock exchanges.

Thierry Pilenko, chairman and chief executive of Technip, would serve as executive chairman of the combined company.

In an interview Thursday, Pferdehirt said that companies like FMC provided equipment for oil projects while outfits like Technip installed it. By joining forces, “we can reduce that complexity,” he said. “We can remove unnecessary hardware.”

The deal would build on the existing joint venture between the two companies, which involves underwater operations.

“We want to take this strategy further and across the full footprint of the two companies,” Pilenko said in a statement.

Analysts said the move shows how tough things have become for the oil services industry as a result of the plunge in petroleum prices, to just below $50 a barrel from more than $100 a barrel in 2014.

The service companies, which do much of the construction and technical work for the industry, have been hit hard as their clients have canceled or postponed projects worth hundreds of billions of dollars, while demanding lower prices from their vendors. Costly, specialized ships for laying undersea pipes and placing equipment on the ocean bottom have been idled, and the prices contractors can charge for products have been cut sharply.

Technip’s net income for 2015 fell by about 90 percent compared to a year earlier, to 45 million euros, or about $50.7 million, on 12.2 billion euros in revenue.

FMC’s 2015 income before tax fell more than 50 percent, to about $500 million on $6.4 billion in sales.

Both companies are already engaged in cost-reduction programs. Technip said, for example, that it reduced its work force by 4,000 last year, to 34,400 employees.

“The sector slowdown is so bad companies must act to achieve further cost-cutting,” with mergers perhaps the only option, Nicholas Green, an analyst at Sanford C. Bernstein in London, wrote in a note to clients Wednesday. Green said the FMC-Technip merger “raises the bar for all others.”

Green estimated that the merger could help the companies reduce their costs of developing offshore oil and gas fields by 30 percent.

But there may be limits to the merger activity. Regulators recently forced two other major oil services companies, Halliburton and Baker Hughes, to drop a merger plan, over fears of reduced competition.

FMC and Technip, though, say that their merger is unlikely to encounter regulatory resistance because their businesses are more complementary than competitive.